Seeing a lot of tricks similar to how ridesharing companies tried to be "profitable" before going to IPO. Caveat: Thing have materially improved but really Uber is carried by its insane Ads margins
The idea of removing model training from your costs is a little wild tbh.
The profitability of being able to serve a query wasn't really under question (nor is the margin expected to be anything less than 80%+) I think.
> The idea of removing model training from your costs is a little wild tbh.
Yeah, I didn't believe they'd claim something like that. But yes indeed, from the article:
> Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model,
Is this how all AI companies calculate if they're profitable or not, by removing the highest costs? What a circus.
> Anthropic has told shareholders that its adjusted operating income will be positive for a second straight quarter, the Financial Times reported on Sunday, citing multiple people with knowledge of the matter.
Note this claim is about „operating profit“, which commonly is the revenue - operating expenses (COGS, rent, payroll). This does not include RnD cost.
>Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), and the cost of training its model, the newspaper said.
Gross margin is typically (revenue - COGS) / revenue. Thus, both statements above seem generally in line with commonly accepted accounting standards.
The way I read it, they are convincing the investors that they can fool the larger population convincingly. At the end of the day the investor term is misnomer for big institutional investors, given that these people are managing other people money where they always make out a certain percentage of fees despite the outcome.
I can’t count the number of times I’ve heard variants of ‘they’re losing money on every query’ and ‘I’m getting 10k worth of tokens for $200’ over the last year. People clearly believed serving margins were -ve
I still question it. It's very light on details by just casually dropping they have 80% margins. I smell bullshit on this.
It is certainly not above them to play accounting tricks to pretend to be anywhere near profitable.
If you create a machine that can turn a dollar into 5, you don't dillute ownership of the machine, you use your fabulous profits to expand production. Anthropic, on the other hand, raises money like crazy, and seems desperate to IPO.
I think part of the big push to "slow down AI development" is to add some sort of regulatory pressure that will give them sort cover to train less models and slow their burn rates
> idea of removing model training from your costs is a little wild tbh
It's one of several metrics and tries to estimate steady-state profitability. It's the only one being leaked because it's the most sensational one. But don't assume cash-flow profitability is negative just because you don't know it.
Well then you haven't listened to Ed Zitron or any of the other AI bubble doomers. His contention is that its worthless and they lose money on every query.
But isn't he taking all the costs into account, that created the experience? Rather than just literally the inference/serving infrastructure? Bananas way of calculating things if so, doesn't match reality at all.
Zitron is worthless–lying about numbers and not correcting the record when you're called out means you aren't trustworthy. Worse than that if you directionally agree with him, which I do.
Is it really capex though? New models are being constantly trained, released at least quarterly, while old ones become obsolete. Training costs vary, but never disappear.
Isn't training necessary for the end-product? How is it not a cost to generate the output if you can't generate the output without having done the training? Seems more like saying that a car is profitable product when you don't have to account for the steel that its made from. Seems completely disingenuous.
> before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model, the newspaper said.
"We are profitable when we ignore our costs".
I wonder what other funny strategy they may employ to claim 80% margins.
Yes, but --- using something they call "adjusted operating income".
This is reportedly a sort of "Enron" accounting which excludes some really big expenses like revenue sharing, the cost of model training and hardware deploymments which are kept off the corporate balance sheet using "special finance vehicles".
>This is reportedly a sort of "Enron" accounting which excludes some really big expenses like revenue sharing, the cost of model training and hardware deploymments
source? this seems false. reportedly the adjusted profitability includes inference and amortized training costs
> Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model, the newspaper said.
Yes the company known for famously training 1 model
The “opens new tab” sometimes drives me insane when using TTS to listen to Reuters articles. I’m assuming they are using the wrong CSS/markup for the purpose.
Or they've hit diminishing returns that will collapse their valuation, so saying "this is a threat to humanity" sounds better than "This is about as good as the tech is going to be for a long time" to investors.
That's a bit hyperbolic. It's closer to using EBITDA as your "earnings" and bucketing model costs in a rapid depreciation model (which is fair, I'd assume a model is good for more than just 1 year...
The models don’t exist without training. I don’t see how excluding the training cost from the thing they are selling(inference) is perfectly reasonable and not just an accounting trick.
If I am building a widget and have a widget factory that cost money to build and operate, is it reasonable to only use the cost of shipping my widgets to my buyer as the costs for my gross margin?
This concern trolling on behalf of people that can't read to the end of a sentence, about a conversation that they aren't even part of.
Anthropic is clear on what they are communicating. If every message had to be dumbed down to the level of the least attentive person to run across a message third hand, we could communicate and nothing but grunts.
Generally speaking, IDK about Anthropic specifically, they don't train purely from scratch though. A good chunk of the setup is reused previous models can serve as a basis for the next model. Plus there are methods that also use the previous model as a warm start.
Just taking a wild guess, but I'd assume the .5 releases are built on the previous and the Majors (3, 4, 5) are more extensive retrains?
The idea of removing model training from your costs is a little wild tbh.
The profitability of being able to serve a query wasn't really under question (nor is the margin expected to be anything less than 80%+) I think.
Yeah, I didn't believe they'd claim something like that. But yes indeed, from the article:
> Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model,
Is this how all AI companies calculate if they're profitable or not, by removing the highest costs? What a circus.
Note this claim is about „operating profit“, which commonly is the revenue - operating expenses (COGS, rent, payroll). This does not include RnD cost.
>Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), and the cost of training its model, the newspaper said.
Gross margin is typically (revenue - COGS) / revenue. Thus, both statements above seem generally in line with commonly accepted accounting standards.
In one sense, yes, but I do see people question it regularly.
It is certainly not above them to play accounting tricks to pretend to be anywhere near profitable.
If you create a machine that can turn a dollar into 5, you don't dillute ownership of the machine, you use your fabulous profits to expand production. Anthropic, on the other hand, raises money like crazy, and seems desperate to IPO.
It's one of several metrics and tries to estimate steady-state profitability. It's the only one being leaked because it's the most sensational one. But don't assume cash-flow profitability is negative just because you don't know it.
HN had long debates about whether AI inference could even be affordable from a compute perspective.
Which unfortunately probably hides the real truth. That large labs do have potential problems with long term profitability.
In your car example the training is much like setting up the manufacturing line.
I think the issue here is that the capex depreciates super fast since the models obsolete really fast.
Active competition requires constant reinvestment and does not allow them to milk their trained models long enough (except poor Haiku maybe).
"We are profitable when we ignore our costs".
I wonder what other funny strategy they may employ to claim 80% margins.
This is reportedly a sort of "Enron" accounting which excludes some really big expenses like revenue sharing, the cost of model training and hardware deploymments which are kept off the corporate balance sheet using "special finance vehicles".
https://www.msn.com/en-us/technology/artificial-intelligence...
source? this seems false. reportedly the adjusted profitability includes inference and amortized training costs
Listed at the end of my post.
this seems false.
Source showing this in accordance with GAAP (Generally Acceptable Accounting Practices)?
edit: def not gaap profitable or they would have said that to investors. and their stock-based comp is surely astronomically high on paper.
They'd be in their quiet period...
Yes the company known for famously training 1 model
If I am building a widget and have a widget factory that cost money to build and operate, is it reasonable to only use the cost of shipping my widgets to my buyer as the costs for my gross margin?
Anthropic is clear on what they are communicating. If every message had to be dumbed down to the level of the least attentive person to run across a message third hand, we could communicate and nothing but grunts.
Just taking a wild guess, but I'd assume the .5 releases are built on the previous and the Majors (3, 4, 5) are more extensive retrains?
If the article is to be believed they aren’t including their training costs.
Also lol at reporting it as above 80% without accounting for the revenue sharing as well.
I bet anyone’s finances look great if you just start ignoring all the money they owe.
Lol and truth.